Mortgage delinquencies caused by the coronavirus will exceed Great Recession levels, according to this forecast

The coronavirus-fueled economic downturn is hitting homeowners hard. And the worst may be yet to come.

A new report from U.K.-based economic forecasting firm Oxford Economics estimates that 15% of homeowners will fall behind on their monthly mortgage payments. If that forecast comes to fruition, mortgage delinquencies caused by the coronavirus pandemic would exceed the number seen during the Great Recession. Back then, the peak delinquency rate was 10%.

Nearly 4 million homeowners are in the midst of forbearance plans, representing 7.54% of all mortgages, according to the latest data from the Mortgage Bankers Association, an industry trade group. When it comes to loans backed by Ginnie Mae, that figure increases to nearly 11% — these include Federal Housing Administration and Veteran Affairs loans.

Stimulus legislation signed by President Donald Trump allows any borrower with a federally-backed mortgage to request forbearance for up to 12 months, meaning the homeowner can skip or make reduced payments during that time.

Given the risk mortgage companies are facing right now, many lenders have imposed more stringent requirements for loan applicants. “The uncertainty in the mortgage market has contributed to a significant tightening of lending standards that may persist even once a recovery is underway,” Oxford Economics wrote.

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The pace of forbearance requests has slowed in recent weeks following April’s breakneck speed, but that could change, experts warned. “Although the pace of forbearance requests slowed this week, call volume picked up — which could be a sign that more borrowers are calling in to check their options now that May due dates have arrived,” Mike Fratantoni, chief economist at the Mortgage Bankers Association, said in the report.

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The tidal wave of forbearance requests and delinquent loans has put enormous strain on servicers, the companies that collect monthly payments and distribute them to the investors who own the loan including mortgage-backed securities.

Fannie Mae FNMA, +5.73% and Freddie Mac FMCC, +5.33% have taken steps to reduce the burden on servicers, which are still expected to forward payments onto investors for four months after a borrower has stopped paying or entered into a forbearance agreement.

One bit of good news for homeowners: While Oxford Economics said an uptick in foreclosures is “inevitable,” the wide availability of loan forbearance is expected to allow many people to stay in their homes.

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